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Two companies that offer to finance the sale of personal computers to consumers with poor credit ratings have agreed to pay up to $5 million for consumer redress to settle Federal Trade Commission charges that they violated federal laws.

According to the FTC’s complaint, BlueHippo Funding, LLC and BlueHippo Capital, LLC offered to extend credit to consumers to finance purchases of personal computers and other consumer electronics with down payments of $99 to $124 and a year of weekly or bi-weekly payments ranging from $36 to $88. In nationwide television and radio commercials, and on their Web site, the defendants touted the ability of consumers with “less than perfect credit, bad credit, no credit” to finance the purchase of a computer. Many consumers who ordered products paid hundreds of dollars and received nothing in return, the complaint alleges.

According to the complaint, the defendants required consumers to agree to a series of automatic, periodic debits from their bank accounts to purchase their products, promising that they would deliver the product once the consumer made 13 weekly, or seven bi-weekly, payments. In many instances, the defendants debited consumers’ accounts without first disclosing that consumers could not get a refund even if they cancelled before delivery of the product, and regardless of the reason for cancellation.

Consumers who ordered products by calling a toll-free number were told that they would receive a “shipping verification form” with sale terms and shipping information, and that they had to sign and return the form to ensure product delivery, the complaint alleges. The form contained terms that were not disclosed previously, including disclosures regarding finance terms. The defendants often failed to provide the forms and revolving account agreements before they debited accounts, so the finance terms and refund policy were not disclosed before consumers started making non-refundable payments.

According to the complaint, many consumers did not receive the merchandise they ordered or refunds. The FTC alleges that the defendants failed to clearly and conspicuously disclose their policy of not providing refunds before debiting accounts, in violation of the FTC Act, and consumers had no opportunity to make a timely and informed decision about whether or not to risk the potential loss of advance payments. The defendants also allegedly failed to deliver the products after consumers made 13 weeks of payments, as promised during the sales call, also in violation of the FTC Act.

The defendants also are charged with violating the FTC’s Mail Order Rule by failing to ship merchandise in a timely manner or give consumers the right to cancel and receive a refund. They allegedly violated the Truth in Lending Act (TILA) and Regulation Z by failing to make certain written disclosures before a transaction is made under an open-end consumer credit plan, and they allegedly violated the Electronic Fund Transfer Act (EFTA) and Regulation E by conditioning the extension of credit to consumers on repayment by preauthorized electronic debits.

Under the proposed stipulated final order, the defendants are barred from misrepresentations in the marketing of consumer electronics or any product requiring four or more periodic payments before shipment. They also are barred from misrepresenting refunds, cancellations, exchanges, or repurchases of products without disclosing clearly and conspicuously, before receiving payment, the terms and conditions, and any policy of not refunding all payments when a consumer cancels the contract before product delivery. In addition, they are permanently prohibited from violating the Mail Order Rule, the TILA and Regulation Z, and from conditioning the extension of credit on mandatory preauthorized transfers in violation of the EFTA and Regulation E.

The settlement includes a monetary judgment of at least $3.5 million and up to $5 million. This money will be used to provide redress to consumers who entered into contracts with the defendants before March 2006, made payments, and did not receive the ordered products, refunds, or other restitution. If valid consumer claims exceed $3.5 million, the defendants will be required to pay up to an additional $1.5 million to pay those claims. The settlement also requires the defendants to stop collecting money from purchasers who are entitled to redress, to stop furnishing derogatory information about such purchasers to credit reporting agencies, and to notify any agency to which they have provided such information that the person’s account is in good standing. The settlement contains monitoring and record keeping provisions to ensure their compliance.

The Commission vote authorizing staff to file the complaint and stipulated final order for permanent injunction was 5-0. The documents were filed in the U.S. District Court for the Southern District of New York.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been
or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the complaint and stipulated final order are available from the FTC’s Web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://www.ftc.gov/bcp/consumer.shtm.